Based on results of the “Section 301” investigation, the Trump administration announced plans to impose a tariff of 25% on certain imports from China with the signing of a presidential memorandum on March 22. A detailed report covering 1,300 product lines valued US$60 billion will be released in 15 days by the U.S. Trade Representative, and plans on restricting Chinese investments in US technology fields will come out in 60 days.

To offset the loss caused by the U.S. tariffs on imported Chinese steel and aluminum products, China’s Ministry of Commerce released plans of imposing tariffs on 128 US exports to China in response to the U.S. Section 232 measures, which includes a 15% tariff on 120 products worth US$977 million including fresh fruits, nuts, wine and seamless steel pipes, and a 25% tariff on 8 products including pork, and recycled aluminum.

In fact, 7 rounds of protectionist policies have been placed since President Donald Trump took office. Approved in Jan 2018, a four-year long tariff-rate quota on imported washing machines was regarded as the most relevant protectionist policy concerning China’s home appliance industry by far. As the U.S.-China trade dispute escalates, how badly could it affect China’s home appliance industry?

Little impact on large appliances; a blow to certain portable appliances

As the biggest home appliance exporter of US, China accounted for half of global home appliance exports (parts and accessories excluded) to the US, with some categories taking a particularly high share, for instance, window air conditioners and microwave ovens within major home appliance market more than 80%, and within portable appliance market, vacuum cleaners, food processors and coffee makers more than 70%, hair dryers and irons more than 80%, electric hair clippers and bread makers more than 90%. The U.S., as China’s largest importer of home appliances, takes more than one fifth of China’s home appliance exports. In 2017, China’s export value of home appliances to the US hit a record high of US$14.4 billion, up by 8.1% year-on-year, accounting for 23.1% of China’s total export value of home appliances, down by 0.3% year-on-year. In the past 10 years, China’s export value of home appliances to the US witnessed a CAGR of 7%.

While most home appliance categories saw an upward trend even an all-time high performance in exports in 2017, washing machine sector was an exception, with its export volume as well as value of washers to the U.S. plunging by more than 70%. This was largely because of the U.S. anti-dumping ruling on certain China-made large residential washers. For the same year, a number of categories stood out with an export value of over US$1 billion of products to the U.S., for example, air conditioners, microwave ovens, vacuum cleaners and grills & ovens, of which vacuum cleaners and grills & ovens saw a double-digit growth. As to air conditioners, the export value remained steady though the volume spiked. This was because most of the products exported to the U.S. were cheap window mounted type.

The U.S. is China’s largest importer of 13 categories of home appliances, including air conditioners, compressor refrigerators, freezers, microwave ovens, electric fans, food processors, electric space heaters, electric irons, electric grills & ovens, coffee makers/kettles, bread makers, electric cookers, and gas ranges. The export volumes of microwave ovens, vacuum cleaners and electric grills & ovens to the U.S. takes more than 30% of China’s total export volumes of respective products, while coffee makers/kettles more than 40%. In 2017, these figures dropped in general, particularly in sectors of washers, microwave ovens, freezers and electric space heaters. The proportion of washers to the U.S. plunged to 2.2% from 9.5% in 2017.

As to the proportion of exported products to the U.S. take in the output, refrigerators, freezers, washing machines, air conditioners saw a share of 8%, 11%, 0.8% and 7% respectively, while microwave ovens, fans and vacuum cleaners 23%, 24% and 44% respectively.

Based on the above analysis, we could see that the U.S. has a high dependence on China’s exports of home appliances, especially portable appliances. As a result, portable appliances would suffer most if the U.S.-China trade friction further escalates to a trade war that involves home appliance industry completely. Within portable appliances, sectors that have a high stake in the U.S.-China trade, such as vacuum cleaner sector, would be more exposed. Major appliances, for example refrigerators, washers and air conditioners, would not be affected too much. In general, there would be short-term impact, which, in the long round, would not be significant.

China’s home appliance industry still has an absolute competitive edge

China’s home appliance industry holds a significant position globally. According to CHEAA, China’s outputs of refrigerators/freezers, air conditioners, washers and microwave ovens accounted for 55%, 80%, 51% and 80% of the global outputs of respective categories; refrigerator-use compressors and AC-use compressors 75% and 80% respectively; portable appliances a hefty 90%. But China’s advantages lies in more than that. Its well-developed industry chain, mature management of industry players, highly efficient production and operation, and competitive labor cost brings it an edge that could hardly be replaced. From this perspective, if exports of China’s home appliances to the U.S. dive dramatically under the U.S. high tariffs, it could lead to a supply-demand imbalance and therefore a spike in product prices on the U.S. market since the large production capacity from China could hardly be substituted in a short time.

Leading enterprises remain competitive

Standard bearers of China’s home appliance industry including Haier, Midea and Gree have made their deployments globally, which allows them to skirt trade frictions through production capacity expansion, production site shifting, and product mix upgrading. And since revenue from exports to the U.S. takes a relatively low share in their revenue currently, the impact of the U.S.-China trade friction on them would not likely to be significant.